EU says it may lend Egypt as much as 500 million euros

The European Union may be prepared to lend Egypt up to 500 million euros ($660 million) to help it finance a budget deficit provided it successfully concludes a financial assistance agreement with the IMF, an EU official said on Wednesday.

Egypt said in mid-January it had formally asked the International Monetary Fund (IMF) for a $3.2 billion aid package to fill a budget gap widened by a year of political and economic turmoil.

Egypt, which turned down a similar IMF package in June, said it now wanted the money as soon as possible and hoped an agreement would be signed within weeks.

The turmoil has pushed up unemployment, widened its budget and balance of payments deficits and drained its foreign reserves. Many economists believe a currency devaluation is imminent.

“It is new money for budget support that is linked to an IMF agreement,” Gerhard Krause, head of the EU’s economic cooperation section in Cairo, told Reuters in a telephone conversation.

Each disbursement of the EU funds would be paid in tandem with IMF disbursements and be linked to benchmarks that Egypt set for itself under a reform program agreed with IMF, Krause said. The interest rate has yet to be set, he said.

The EU’s 27 member states would have to approve the loan agreement before it could be signed, Krause said.